July 8 (Bloomberg) -- IndyMac Bancorp Inc., the U.S. mortgage company that stopped most of its lending as losses mounted and capital deteriorated, blamed Senator Charles Schumer for ``elevated levels of deposit withdrawals.''

Schumer's comments last month about the lender's reliance on deposits purchased from third parties are causing customers to pull their money and making it harder to raise funds, the company said in a regulatory filing today. Schumer responded calling IndyMac a ``junior version'' of Countrywide Financial Corp. and said bad lending practices date back several years.

IndyMac, based in Pasadena, California, said yesterday that it's firing half its employees and is working with regulators on a new business plan after failing to raise capital. The demise of IndyMac, the second-largest independent U.S. mortgage lender last year behind Countrywide, would be the biggest since the bankruptcy of American Home Mortgage Investment Corp. in August.

``They're in the unfortunate position of being a specialty mortgage entity at a time when mortgage assets are out of favor,'' said Christopher Wolfe, an analyst at Fitch Ratings in New York, in an interview. Fitch reduced IndyMac's debt four levels today to CC from B-. ``Our rating suggests there's a high degree of doubt that they can'' survive, Wolfe said.

IndyMac fell 27 cents to 44 cents at 4 p.m. in New York Stock Exchange composite trading, reducing its market value to $44 million from more than $3.4 billion in mid-2006.

Schumer Letters

Schumer, the New York Democrat, sent letters last month to home-lending regulators including the Federal Deposit Insurance Corp., warning of a potential collapse. Those comments led to additional restrictions on the bank's borrowings and caused its so-called operating liquidity to dwindle to about $1.7 billion, the company said in the filing today.

IndyMac spokesman Evan Wagner declined to comment beyond the company's statements.

The lender lost almost $900 million in the nine months ended in March and its second-quarter loss will exceed the $184 million reported in the prior period, IndyMac said.

Because it doesn't have enough capital to meet the ``well capitalized'' threshold set by regulators, IndyMac said it can't fund its lending with deposits acquired through independent brokers. IndyMac's request for a waiver from the FDIC to allow for brokered deposits hasn't been approved, the company said.

``We don't expect to be able to raise capital until there is more stability and less uncertainty in the housing and mortgage markets,'' IndyMac Chief Executive Officer Michael Perry said in a statement yesterday.

Alt-A Loans

At the bank branch adjacent to its headquarters, spread across a coffee table were blue brochures entitled, ``Your Insured Deposits: FDIC's Guide to Deposit Insurance Coverage.'' There were no lines forming at the branch today.

IndyMac specialized in so-called Alt-A mortgages that usually didn't require borrowers to provide documentation on their incomes. The lender said it is working with regulators on a new business plan while it curbs lending and will slash its 7,200-strong workforce by 53 percent.

``IndyMac was one of the banks that was using relatively weak underwriting standards on the basis that housing prices would continue to rise in value,'' said Jason Arnold, an analyst at RBC Capital Markets in San Francisco, in an interview yesterday. ``With prices coming down, that became the bottom card in the house of cards built by these lenders.''

The company's key asset is its Southern California retail bank network with 33 branches and $18 billion in deposits, mostly insured by the FDIC, Arnold said. IndyMac's inability to find a buyer or attract capital, even amid pressure from regulators, reflects continued concern over the declining value of its loans, he said.

IndyMac agreed to sell most of its retail mortgage branches to Prospect Mortgage. The deal gives the Northbrook, Illinois based-company more than 60 branch offices with 750 employees, Prospect said today in an e-mailed statement.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net; Ari Levy in San Francisco at alevy5@bloomberg.net.

Last Updated: July 8, 2008 16:49 EDT